Bankruptcy Myths

I will lose all my property.
Not true. The federal government does not want to see you living in a cardboard box. The bankruptcy code permits you to claim an “exemption” in all kinds of property which you get to keep. In the vast majority of bankruptcy cases, people can exempt everything they own and do not lose a single item of property or money. You can claim exemptions for your house, car, tools, pension plans, 401(k)’s and IRA’s, your household furniture, clothing and jewelry. See our page on exemptions for more information. In rare cases where people own property that cannot be claimed as exempt, we can help you plan other options. However, the truth is that bankruptcy actually increases the chances of keeping your property because, by discharging most of your unsecured debt, it frees up your monthly income so you can once again afford your home mortgage and car loans.

I will lose my home if I file bankruptcy.
Not true. As long as you are up to date on your mortgage payments, bankruptcy law prevents the bank from foreclosing unless you are in default on your payments. Even if you are behind on your payments, if you can afford to make up the missed payments over 36-60 months, a Chapter 13 plan can permit you to cure your default and keep your house. If you have no mortgage at all, Massachusetts residents can claim an exemption up to $500,000 in the value of your house.

I will lose my job if I file bankruptcy.
Not true. First of all, in most cases, employers will never find out about your bankruptcy unless you tell them. It is not reported to them. And, although it is reported on your credit report, employers have no way of getting that information unless you grant them permission. When is the last time you recall your employer asking you to sign a permission slip to obtain your credit report? Probably never. Moreover, federal bankruptcy law specifically prohibits discrimination against you solely because you have filed bankruptcy.

Everyone will know I’ve filed for bankruptcy.
Not true. Although it’s technically true that bankruptcy is a public court record which is open for public inspection, there is no widespread publication of bankruptcy proceedings in the media. Celebrities and major corporations will be reported in the news, but most mainstream bankruptcy proceedings are never reported. In our area, the local newspapers do not report it. In the old days, small town newspapers used to report local bankruptcy filings on slow news days, but I haven’t seen that in more than 20 years. With the explosion of personal bankruptcy filings in recent years, there is less and less public interest. In all likelihood, the only people who will know about your bankruptcy are your creditors.

Filing for bankruptcy will permanently ruin my credit.
Not True. The bankruptcy code permits bankruptcy filings to stay on your credit report for 10 years. However, the effect of that notation becomes less and less important each year. Credit reporting agencies each use a scoring method to report your credit score. Although the scoring methods are kept secret, some things about the score are well known, and current accounts weigh higher in the score calculation than old defaults. After bankruptcy, once the huge bills are gone, your credit score improves because you can finally begin pay your bills on time. Most people actually achieve a higher credit score in the years immediately following their bankruptcy because their debt/income ratio has gone down, and are showing current payment history. On the other hand, people who try to dig out of that hole by themselves rarely have a better credit score in three years.

You’ll never get credit again.
Not true. Bankruptcy will actually help you start rebuilding your credit sooner than if you don’t file. You will probably be able to obtain a “secured” credit card immediately after filing – a bank that gives you a credit card with a dollar limit equal to whatever you deposit in a savings account there. High-interest offers from regular credit cards will follow. With no other unsecured debt to repay, you actually look attractive to these companies. Car loans and even home mortgages are often available after about two years. Of course, there is a downside to filing Bankruptcy. You can expect to pay a higher interest rate on credit purchases, and it will be a while before you get offers for great rates again. However, with good credit practices after your bankruptcy, people have been able to qualify for a home mortgage or refinance after about two years.

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